Bozeman’s multifamily vacancy rate inched its way over 7% in the 3rd quarter of 2023. Vacancy rates will likely continue to rise as 1,476 units are under construction in the market. Rents are dropping and concessions are picking up, as the market shifts from a landlord’s market to a renter’s market.
The vacancy rate currently stands at 7.14%, indicating an oversupply. There is availability across floor plan types. Almost half of the available units in the market are two-bedroom plans. Most of the available units are at recently opened properties. Properties built before 2015 have a 2% vacancy rate and an average rent of $1,971 per month.
The average total rent has dropped by around 5% year over year in the Bozeman market. Average rents do not include the impact of concessions. One month free represents an 8% discount on rent. Currently, the average asking rent in Bozeman is $2,140 per month.
With a full development pipeline, the vacancy rate in Bozeman is expected to climb. How high the rate gets will depend on the delivery timing for the units under construction. Based on the recent pace of absorption, it could take more than 2 ½ years to lease up the units currently under construction. A continued drop in rental rates or an increase in demand could speed the process.
What to Watch For
Increased Rent Concessions – Developers are unlikely to drop rents and will continue to offer concessions such as free months, reduced deposits, and waiving application fees. Rent drops are a last resort to fill units. Most developers have a targeted timeline to lease-up buildings and the closer that deadline looms, the more concessions they will offer.
Condominium Conversions – Some buildings may be viable options for conversions to for-sale units. These generally occur at higher-end, smaller properties. It can also be a viable option for older Class C properties in great locations. Updating the property and selling the units to individual buyers may be more profitable than competing in a crowded rental market.
Projects Cancel – Many projects in the planning pipeline will likely be delayed or canceled as vacancy, interest, and cap rates shift project financials into the red. This may in turn reduce land values, as developers look to control costs. Some projects may also stop mid-construction or prior to completing all phases.
Property Management Steps Up – For developers and owners, particularly of new properties, it could be a difficult time. Depending on the underwriting, resetting rents and managing slower lease-ups may cause distress. A focus on quality property management will be necessary to preserve asset values in a more competitive market.
Extremely tight housing markets are not a positive for any community. It is a stress for many residents as they struggle to find and maintain housing. Employers may need help finding staffing. High rents mean residents have less to spend at local businesses. Short-term, an oversupply of housing for Bozeman is a positive. It will allow the market to reset and function better for residents.
For developers and owners, particularly of new properties, it could be a difficult time. Ongoing growth in Bozeman and delays on projects in planning should allow for a return to more normal market conditions. But, for those who used underwriting assumptions based on the extraordinary conditions of 2020-2022, it may prove difficult to recover.